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CAD/JPY to 90?
Next week is an exceptionally important one for CAD/JPY with the Bank of Canada’s monetary policy announcement and Janet Yellen’s semiannual testimony on the calendar. Friday’s U.S. and Canadian economic reports harden the case for BoC and Fed hawkishness. 45K jobs were added in the month of June, driving the unemployment rate down to 6.5% from 6.6%. Although most of the jobs were part time, the uptick in the participation rate and the fact that Canada did not lose full time jobs (after adding a whopping 77K in May), reflects labor market strength. The IVEY PMI index also rebounded sharply in June after pulling back in May. As for the dollar and the USD/JPY portion of the trade, traders are clearly banking on Yellen’s continued optimism. While Friday’s labor market was mixed, the overall report was good enough for dollar bulls who have turned a blind eye to any negative reports and trusting in the Fed. The argument is compelling with all 3 members of the Fed leadership (Yellen, Fischer and Dudley) pointing to the improvements in the U.S. economy as reasons for policy normalization. The 222K increase in non-farm payrolls in June and the upward revision to jobs in May is enough for Yellen to maintain her credibility and justify her positive labor market assessment. While the unemployment rate ticked up to 4.4% from 4.3%, it has been low for some time so it is not a major concern particularly since the participation rate and average weekly hours increased. The slowdown in wage growth on the other hand is a bigger problem especially as earnings in May were revised lower but investors dismissed that as they hope wages will rebound in the months ahead on stronger service and manufacturing activity and uptick in jobs.
Technically, CADJPY shot sharply higher on Friday and oftentimes after these strong moves, there’s continuation. Taking a look at the weekly chart, now that the currency pair has broken above the 38.2% Fib retracement of 2014 to 2016 slide, there’s no resistance until the December 2016 high near 89 and then the 200-day SMA near 90.73.